Weekly Auto Notes: Collapsing Russian Car Sales Hit GM and Ford

December 22nd, 2014 by Trefis Team
-7.78%
Downside
45.08
Market
41.57
Trefis
GM: General Motors logo
GM
General Motors

The Ruble has dropped by more than 40% since June on the back of collapsing oil prices and the geopolitical situation in Ukraine. Auto sales are down 12% over the first eleven months of the year. [1] Additionally, the auto sales that have been made translate into lower profits for companies like GM and Ford when translated into U.S. dollars because of the drop in the value of the Ruble.

GM’s business in Russia includes the sale of Opel, Chevrolet, and Cadillac vehicles in Russia. In addition, GM also operates a joint venture with AvtoVAZ in Russia that produces the small SUV sold under the Chevrolet brand called Nina. GM’s market share has dropped from 9.2% in 2013 to below 8% this year and its sales volume has dropped by more than 20%. An even bigger problem for GM is that its factory near St. Petersburg is faring poorly. The company had planned to invest $300 million to expand production at the plant, but declining sales volume and the uncertainty surrounding the occupation of Crimea in Ukraine have put those plans in doubt for the time being. In the months of September and October, the plant was operational for less than two weeks in total. The plant produces the Chevrolet Cruze, the Opel Astra, and the the Chevrolet Trailblazer. The company announced this week that it plans to put sales of its cars to deal makers on hold for the time being in order to manage the risk associated with operations in a volatile market environment. [1]

GM’s stock price stayed stable around the $32 mark this week. We maintain our ~$40 price estimate for GM, which is still about 25% above the current market price. We estimate revenues of about $167 billion for GM in calendar year 2014.

Relevant Articles
  1. Down 12% YTD Will General Motors Q3 Earnings Help It Rebound?
  2. Rising Volumes And Cooling Inflation Will Drive GM’s Q2 Results
  3. What To Expect From GM’s Q1 Earnings?
  4. What’s Next For GM After A Solid Q4?
  5. Company Of The Day: General Motors
  6. With Deliveries Picking Up, How Will GM Fare In Q3?

Ford Motors has also suffered due to the market conditions in Russia. Its market share has declined from close to 4% at the end of 2013 to close to  2% currently. Sales volume has declined by more than 40% on a year-to-date basis. Ford operates a joint venture with Sollers in St. Petersburg in Russia that makes the Ford Focus and Mondeo sedans. The joint venture also makes other vehicles from imported parts. Earlier this year, Ford cut 950 jobs at its two factories in Russia. In June, the company wrote down the value of its investment in Russia by $329 million. Ford, which formed the joint venture in 2011, had previously stated that it valued the investment at $367 million. [1] Ford, which has raised unit prices by about 5% so far this year, will continue to sell volumes to dealers.

We estimate gross revenues of about $161.7 billion for Ford Motors in 2014, with EPS of $1.81, which is slightly higher than the market consensus of $1.04-1.20, compiled by Thomson Reuters. We currently have  a $20 price estimate for Ford Motors, which is approximately 30% ahead of the current market price.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Russian crisis forces GM to cut sales, Ford to ax jobs, The Detroit News, December 2014 [↩] [↩] [↩]